Ag Alert update: Milk-pricing bill withdrawn

California Department of Food and Agriculture Secretary Karen Ross announced Wednesday that milk-pricing legislation will not be pursued during this legislative session.

In a statement, she acknowledged that timing on Assembly Bill 2730 "was not ideal," but that she was "compelled to see if we could get something done this year."

"Since the August 13th Task Force meeting, a tremendous amount of progress has been made, but not enough," she said.

Ross did not say whether the department will pursue reform legislation again next year or discuss the future role of the Dairy Task Force.

Watch for further coverage in the Sept. 3 issue of Ag Alert.

Milk-pricing bill to be considered by Legislature

By Ching Lee

With just a few days remaining in the state legislative session, the California Department of Food and Agriculture has introduced legislation that would significantly change the way milk is priced and pooled in the state.

The legislation—Assembly Bill 2730—comes after days of negotiation last week between producer and processor representatives, who were working from a draft proposal that CDFA Secretary Karen Ross had distributed to the parties earlier this month for their consideration.

But time is running short to get the bill through the agriculture and appropriations committees of the Senate and Assembly and then passed by both chambers of the Legislature before Aug. 31, when lawmakers recess.

"It's got to really move," said Michael Marsh, CEO of Western United Dairymen.

Marsh described the final language of the bill as "a mixed bag." The Western United board of directors voted last week to support the legislation if it is amended "to enhance the protection of producers' interests in the bill," he said.

What's attractive to dairy farmers, he said, is that the legislation would allow the state's Class 4a and 4b prices to be indexed, over three years, closer to federal order prices. Dairy farmers have long contended that the state 4b price, which applies to milk used to make cheese, is too low compared to what dairy farmers in states under the federal order are paid.

Specifically, the change would be phased in beginning July 2005 by indexing the state 4b price the same as the federal order equivalent Class 3 price, minus $1 per hundredweight, and the 4a price the same as the federal Class 4 price, minus 35 cents per cwt. After one year, the 4b price would be indexed equal to the federal Class 3 price, minus 50 cents per cwt., and the Class 4a price would be indexed no greater than the federal Class 4, minus 50 cents per cwt.

After January 2017, Class 4a and 4b prices may be adjusted, through the hearing process, to minus 50 cents of the federal Class 4 and equal to federal Class 3.

What has caused "some trepidation" for farmers, Marsh said, is that the legislation would also allow 4a and 4b milk to be sold under "alternative milk marketing agreements" that do not obligate processors to pay farmers the state-regulated minimum prices. This change would also be phased in, but during a 12-month period. Starting in July 2015, handlers would be allowed to market up to 50 percent of their 4a and 4b milk purchases under individual contracts with producers—up to 75 percent by January 2016 and 100 percent by July 2016.

Under the current system, dairy farmers pool their milk and processors pay for it based on the different classes of use. The milk revenues are then distributed equitably among farmers.

But with the proposed change, handlers would be able to keep all 4a and 4b milk, after the transition period, out of the pool, Marsh said, noting that 75 percent to 85 percent of the state's milk goes to 4a and 4b use—to make butter and dried milk powders, and to make cheese and whey protein powders, respectively.

Dairy farmers negotiated a referendum into the final language that allows them to repeal the changes in 2020 if they decide they want to discontinue the program.

Marsh said AB 2730—co-authored by Assemblywoman Susan Eggman, D-Stockton, and state Sen. Cathleen Galgiani, D-Stockton—could potentially provide "a substantial amount of relief" on 4b pricing that farmers have long sought. "The tradeoff to farmers," he said, is that their milk would be allowed to "depool" after they have "enjoyed years of relative protection of the pool, have seen the value of milk in California grow from $400 million a year to almost $8 billion a year at the farm gate."

The Milk Producers Council announced its support for the bill, saying that it "sees significant progress represented in the proposal." The Dairy Institute of California, which represents dairy processors, remained neutral.

As of our deadline on Monday, California Dairies Inc., the state's largest dairy cooperative, had not announced its position. The state's two other dairy cooperatives, Dairy Farmers of America-Western Area and Land O'Lakes, oppose the bill, as does the California Dairy Campaign.

Dennis Rodenbaugh, senior vice president and chief operating officer of DFA-Western Area, said the bill lacks analysis "and contains so little detail that it would be impossible to reasonably conclude that it offers beneficial results."

Lynne McBride, executive director of California Dairy Campaign, said AB 2730 would deregulate the largest class of milk in the state and shift more risk to producers. She said her group also objected to the way in which the legislation came together, adding that proposed changes of this magnitude should be put to a vote by farmers to allow more input and consensus.

"Milk prices are relatively high right now, but when prices aren't, dairy producers really rely on the pooling system and the minimum pricing system, and to take it away in such a sweeping fashion in a bill rushed through the Legislature in the final hours is really concerning to us," McBride said.

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.